Comparative Advantage - Essay
Surname: Salmon
First name: Tati
Student number : 12421179
Does the idea of comparative advantage provide a good explanation of current patterns of international trade?
For the last two centuries the international trade evolved a lot and many economists tried to explain it. One of the first theories that attempted to explain the international trade pattern was the Absolute advantage theory. A.Smith was a great economist; he is the one who created this theory. For A. Smith countries should specialize in products in which they have an absolute advantage. It was a good Theory but it was excluding countries that did not have any absolute advantage. David Ricardo another great British economist found this loophole in Smith’s theory and decided to make his own trade theory. Indeed according to Ricardo even if a country does not have an absolute advantage, it can still specialize in products in which it would have the less disadvantage to product relatively to another. So from Ricardo’s point of view any country would be able to specialize in something and then trade with other countries. In that case every country could enjoy the specialization and get some profit. However Ricardo also said that some requirements were needed for the comparative advantage theory:
_there should be two countries and two commodities
_there should be free trade
_the labor should be the unique factor of production and the cost of a product should be evaluated by the labor required for its production
_There should be a good mobility of the labor in the country
_The factor of productions have to be perfectly immobile between countries
_The countries shouldn’t have the same techniques of production , and there is no technological change
_There should be perfect competition
_There should be full employment
_there is no transport cost
By promoting the free trade and the specialization Ricardo set up the bases of the General agreement on tariffs and trade (GATT) and then The World
First name: Tati
Student number : 12421179
Does the idea of comparative advantage provide a good explanation of current patterns of international trade?
For the last two centuries the international trade evolved a lot and many economists tried to explain it. One of the first theories that attempted to explain the international trade pattern was the Absolute advantage theory. A.Smith was a great economist; he is the one who created this theory. For A. Smith countries should specialize in products in which they have an absolute advantage. It was a good Theory but it was excluding countries that did not have any absolute advantage. David Ricardo another great British economist found this loophole in Smith’s theory and decided to make his own trade theory. Indeed according to Ricardo even if a country does not have an absolute advantage, it can still specialize in products in which it would have the less disadvantage to product relatively to another. So from Ricardo’s point of view any country would be able to specialize in something and then trade with other countries. In that case every country could enjoy the specialization and get some profit. However Ricardo also said that some requirements were needed for the comparative advantage theory:
_there should be two countries and two commodities
_there should be free trade
_the labor should be the unique factor of production and the cost of a product should be evaluated by the labor required for its production
_There should be a good mobility of the labor in the country
_The factor of productions have to be perfectly immobile between countries
_The countries shouldn’t have the same techniques of production , and there is no technological change
_There should be perfect competition
_There should be full employment
_there is no transport cost
By promoting the free trade and the specialization Ricardo set up the bases of the General agreement on tariffs and trade (GATT) and then The World